Monetary System

In principle I think Krugman is right to have a go at micro foundations. I have criticised the concept myself for ignoring the potential for research paradigms that are purely macroeconomic in nature. In this sense, the fact that Krugman…

In order to understand much of what is happening in China it is important to understand how financial systems operate under condition of financial repression. Because most of what we know about economics is derived from economists whose…

Credit underwriters pride themselves in their ability to cut lending when they sense that economic fundamentals have changed for the worse. For example one often hears bankers talking about passing on deals in 2007 because of "not liking…

Responding to press conference questions, ECB President Mario Draghi has said the ECB is ‘technically ready’ to bring interest rates below zero. WHat do negative interest rates do? The explanation is here.

Banks pay next to nothing on deposits while charging a rate that is often linked to treasuries on the loans they make. The steeper the curve, the wider the "margin". And given the leverage inherent in the banking system, even a small margin…

Given its importance, here are some facts about the interbank lending market in the US.

European banks continue to be engaged in deleveraging. It is partly driven by new capital requirements and partly by preparing for the next year's ECB's asset quality review and stress test. The deleveraging process includes reducing…

So much has been written about the endogeneity of money that I thought it was now widely accepted. But recent exchanges have shown me that people STILL aren't getting it. Most recently, there have been two themes doing the rounds that…

This lack of credit expansion is a dangerous trend that could result in years of Japan-style stagnation. In order to address it, one approach the ECB is contemplating is forcing the banking system to use the new LTRO proceeds to provide…

Below is the full text of a Speech by Federal Reserve Chairman Ben Bernanke on communication and monetary policy that includes his view on the Fed’s large scale asset purchase program. His ideas give greater clarity to how the Fed thinks…